Chapter 35 - Monitoring experience Flashcards
List reasons for monitoring experience as part of the control cycle
(6)
- Update assumptions as to future experience
- Provide management information to aid business decisions.
- Monitor adverse trends in experience
- Monitor actual compared to expected experience and take corrective actions as needed
- Make more informed decisions about pricing and adequacy of reserves
- Develop earned asset share
How may monitoring the experience be pro-active (5)
reactive - responding to adverse exprience
Identify ways it can make its operations more profitable by:
* profitable products
* profitable sales channels
* profitable markets
* efficient sections of the business
* successful investment strategies
Discuss the data required for monitoring experience
Basic requirements of good data (3)
The basic requirement is for data to be
* of sufficient volume
* consistent
* adequate to deduce trends and future experience
What do we mean by ‘big data’ and how have technical developments changed the insurance landscape in this regard?(2)
Big data
big data essentiallly refers to large volumes of data
technical developments => insurers can handle/analyse large volumes of data more easily
List some advantages of big data
3
- Allow better understanding and analysis of risks…
- Develop more sophisticated and detailed risk classification…
…allowing for more accurate rating and greater ability to select preferred risks - Monitoring may help drive better experience
+earlier identify changes in individual risks
+or being able to intervene/influence policyholder’s behavior
List the types of experience investigations an actuary might conduct (4)
- Mortality and other contingencies
- Persistency
- Expenses
- Investment return
List classifications by which data (both claims and exposed to risk) would be sub-divided for the purpose of analysing the persistency experience (10)
Subdivision and analysis of persistency experience data would usually be by:
- Type of contract
endowments usually > persistency than term assure - Duration in force
usually lower at start of contract - sales method
more suitable product sold => better persistency - target market
more suitable product sold => better persistency - frequency of premium
monthly prem=> more chance stop paying than annual prem - size of premium
big annual prem may be less affordable than smaller monthly prem - premium payment method
debit order persistency > cash payment persistency - original term of contract
- gender
- age
usually worse experience for younger ages
Give 3 other factors, external to life company, that may also influence persistency rates (3)
External factors influencing persistency
- Economic situation
- Competitive situation of product
- Perceived value of product to customer
What considerations should we consider when deciding how to group expenses? (3)
Consider desired end results through purpose of investigation
- contribution method
+analyse expenses into policy groups so can apportion dividend per group - asset shares
+terminal bonuses/terminal dividends, or surrender values…
…historical expenses to be apportioned between different policy types - pricing/reserving
essential for policy’s fair share of insurer costs are established, so correct premiums/charges can be levied
What is meant by a direct expense and an overhead expense? (2)
Direct vs overheads
- Direct expenses are usually variable and can be directly attributed to a product or policy
- Overheads are the balance of expenses, relating to general management and service departments which are not directly involved in new business or maintenance activities
List 4 catergories into which non-commission expenses are split for the purpose of an expense analysis (4)
For expense analysis we consider following 4 non-commission expenses splits
- initial expenses (new business expenses),
- renewal (maintenance) expenses,
- termination expenses,
- investment expenses
Show how initial, renewal, termination expense can be expressed (3)
Give 2 examples of expenses that are not proportional to the number of contracts written or in force (2)
Can be expressed according to whether an expense is:
- Proportional to premiums payable under the contract
- proportionate to the benefit level
- fixed amounts per policy
2 examples of expenses that are not proportional to the number of contracts written or in force
- marketing expenses: may relate to amount initial commission paid
- underwriting expenses
List main items of expenses for a life insurer (6)
- commission (where payable)
- salaries and salary-related expenses
- property costs
- computer costs
- investment costs
- once-off capital costs (other than purchase of a new computer)
Explain how to deal with salaries and salary-related expenses in the expense analysis (6)
split into 3 groups
- staff whose work falls entirely within single analysis cell
- staff whose work falls within multiple analysis cells
- other staff eg catering staff or IT staff
Treat as follows
- Group 1 staff salaries allocated directly to the appropriate cell
- Group 2 staff salaries allocated across cells using timesheets as a sharing mechanism
- Group 3 staff salaries split pragmatically between overheads and direct expenses (which can be further split in proportion to the overall split of Group 1 and Group 2)
List reasons why an insurer would undertake an analysis of surplus arising over a given period (6)
- show financial effect of divergence between valuation assumptions and actual experience, indicating which assumptions are more financially significant
- to show financial impact of writing new business
- to provide check on valuation data and process, if carried out independently
- identify non-recurring components of surplus , thus enabling appropriate decisions to be made about distribution of surplus to with profits PHs/shareholders
- obtain management information on trends in company’s experience
- comply with regulatory requirements
